Issue
Context:
About:
Background:
Analysis
Financial and Operational Creditors:
Tribunals are reluctant in entertaining petitions from any person who does not fall under the definition of financial creditor or operational creditor according to the IBC. To initiate business insolvency proceedings under the Code, this requirement must be satisfied.
IBC process:
A financial or operational creditor can apply to the National Company Law Tribunal (NCLT) for an order to admit the debtor into the corporate insolvency resolution process (CIRP). The creditor has to show that there has been a default in the payment of its debt exceeding 1 lakh rupees. The NCLT has to pass an order either admitting or denying the application within 14 days.
Once a corporate debtor is admitted into the CIRP, its board of directors is suspended and its management is placed under an independent interim resolution professional. From this point on and until the end of the CIRP, the erstwhile management ceases to have any control over the affairs of the company.
The interim resolution professional will then invite and verify claims made by the corporate debtor’s creditors, classify them, and within 30 days of the admission into CIRP, form the Committee of Creditors (COC), comprising all the financial creditors of the corporate debtor.
The COC then appoints an independent person to function as the resolution professional for the remainder of the CIRP term. The resolution professional may be the same person as the interim resolution professional, or someone else, depending on what the COC wants.
Within 180 days from the start of the CIRP, a resolution plan for the revival of the company needs to be approved by creditors holding 75% of the financial debt.
Operational effectiveness of the programme:
In the past two years since the Insolvency and Bankruptcy Code came into being, 701 companies have been admitted under the corporate insolvency resolution process and only 22 resolution plans have been approved, around 87 firms are heading for liquidation and the CIRPs of 525 firms are still under way as of June 2018.
Challenges to resolution process:
Way forward:
Learning Aid
Practice question:
Although India has managed to improve its ranking in both the World Bank’s Ease of Doing Business as well as the World Economic Forum’s Competitiveness Index, but World Bank Data shows that India still performs poorly on debt resolution with other BRICS countries. Discuss how changes in Insolvency and Bankruptcy Code can help India improve its current standing.
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